Abstract

After reporting a restatement, firms are motivated to improve their market credibility and enhance their information environment. One potential management strategy is to reach for "lightning rods" receiving substantial media attention: accounting changes associated with increased conservatism and transparency. Such an opportunity is provided in today's market in the form of stock options and variable interest entities (VIEs)-kin to special purpose entities (SPEs) that evoked attention as a consequence of their role in the Enron debacle. Firms sending these high-profile accounting signals are rewarded. An "event-study" approach quantifies the boost in market-adjusted return experienced by the portfolio of firms when they send their signal. This evidence that signaling adds value for stockholders has implications for both policy setters and market participants. Quality of earnings monitoring analyses and governance "worst boards" listings are considered from a corroborative and motivation perspective.